2018 (5) TMI 2000 - AT - Income Tax

Assessment u/s 153A - Addition u/s 14A - basis of incriminating material found as a result of search or not? - CIT-A deleted the addition - HELD THAT - Assessee has filed its return of income under Section 139(1) of the Act on 30.09.2010 and the said return of income was processed under Section 143(1) of the Act on 02.05.2011. It is also not disputed that on the date of search and seizure operation on 12.10.2011 no assessment proceedings for the impugned assessment year was pending before the AO - it is not a case of abated assessment proceeding which has to be completed under Section 153A - It is neither denied nor disputed by the learned D.R. that the disputed disallowance under Section 14A r.w. Rule 8D was not on the basis of any incriminating material found as a result of search and seizure operation carried out in the case of the assessee. Rather, the AO on the basis of the audited accounts of the assessee has found out the investments made and proceeded to make the disallowance under Section 14A r.w. Rule 8D. In CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD., ALL CARGO GLOBAL LOGISTICS LTD. 2015 (5) TMI 656 - BOMBAY HIGH COURT held where assessment proceeding was not pending on the date of search and seizure operation, the AO in a proceeding u/s 153A retains the power to assess or reassess income on the basis of incriminating material found as a result of search. In the present case the disallowance made under Section 14A r.w. Rule 8D is not on the basis of any incriminating material found as a result of search. That being the case, learned CIT(A) was justified in deleting the disallowance - Decided against revenue.

Summary

Issues:
Deletion of disallowance under Section 14A of the Income Tax Act for Assessment Year 2010-11.

Analysis:

1. Background and Facts:
The appellant, the Revenue, filed an appeal against the order of the Commissioner of Income Tax (Appeals)-54, Mumbai, regarding the deletion of disallowance made by the Assessing Officer under Section 14A of the Income Tax Act for the Assessment Year 2010-11. The assessee, an individual, had initially filed the return of income, which was processed under Section 143(1) of the Act. Subsequently, a search and seizure operation was conducted, leading to the initiation of assessment proceedings under Section 153A of the Act.

2. Deletion of Disallowance by CIT(A):
The CIT(A) considered that the assessment for the impugned year was completed before the search and seizure operation, and no incriminating material was found during the search related to the disallowance under Section 14A. Therefore, the CIT(A) concluded that the disallowance made under Section 14A could not be sustained in the assessment completed under Section 153A. Consequently, the CIT(A) deleted the addition.

3. Arguments and Decision:
The Departmental Representative relied on the grounds raised in the appeal, while the Authorized Representative supported the CIT(A)'s decision. The Tribunal analyzed the facts, noting that no assessment proceedings were pending for the impugned year at the time of the search and seizure operation. The disallowance under Section 14A was not based on any incriminating material from the search. Referring to a relevant case law, the Tribunal affirmed that in the absence of incriminating material, the AO's power to make additions under Section 153A is limited. As the disallowance was not supported by incriminating material, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

4. Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the disallowance under Section 14A for the Assessment Year 2010-11. The judgment was pronounced on 23rd May, 2018, by the Appellate Tribunal ITAT Mumbai, with Shri Saktijit Dey and Shri N.K. Pradhan as the Judicial Member and Accountant Member, respectively.